How a Little Booze Can Help Illustrate the Differences in Crude Oil

Jan 19, 2016

It’s been a few weeks since Congress lifted a decades-long ban on crude oil exports, but something that often gets lost in talking about the end of the ban is that not all oil is created equally.

Oil from one place might have has more sulfur or more impurities than oil from another place; you might hear it called “heavy” or “light” crude. The differences have a big effect on what that oil can be used for, but explaining those differences can be, well, boring. But The Wall Street Journal's Russell Gold says he has a much more interesting corollary that might help illustrate those differences: alcohol.


"Look — all we have is Lone Star. All we have is the sort of cheaper end of the stuff," Wall Street Journal reporter Russell Gold tells KUT during a visit to the venerated saloon Hole in the Wall on Guadalupe Street. "So you build out your bar to accommodate that: You’re not going to be high-end. You’re going have a certain kind of clientele, and everything’s going to be good.”

Gold isn’t really talking about running a bar, though. He’s proving a point about oil.

A lot has been made of the U.S. lifting its decades-long ban on crude oil exports. But much of that coverage ignores the fact that the differences between "sweet," "sour," "light" and "heavy" oil have a big effect on its purpose and utility.

In Gold's analogy, Lone Star beer is the "heavy” type of oil. It’s hard-to-process crude that Texas refineries have been importing for years from places like Canada, Mexico and Venezuela. The dive bar represents Gulf Coast refineries.

But, Gold says, things changed.

"One day your beer wholesaler says, 'Actually, instead of Lone Star, we’ve got a lot of really high-end California pinot noir – really nice stuff,’” he says.

That’s exactly what happened to many U.S. refineries.

"We had just sort of geared up for one type of oil – one type of beer,” Gold says. “We had created a little dive bar that was going to serve Pearl and Lone Star."

Then the fracking boom came and provided plentiful access to light, easy-to-process domestic crude.

"All of a sudden we had all of this sort of high-quality stuff – wine and scotch,” he says. “There was sort of a mismatch."

That’s where lifting the oil export ban comes in.

For decades, the government wouldn’t allow U.S. oil drillers to send most of their crude overseas. The U.S. light oil producers had to sell their crude to domestic refineries, but they wanted to make more money selling in other countries.

"When it came time to lobby Congress, oil producers really wanted to export," Gold says. "Refineries were saying no. They were lobbying against it because they were able to buy all this oil for cheap."

The big question now is what will happen when U.S. producers take their "fine wine" to market. After years of lobbying Congress to lift the ban, oil companies are, not surprisingly, bullish. However, just because we can export light crude doesn't guarantee that other countries will jump at the chance to buy it.

“This is not a slam dunk of ‘Oh, there’s a giant market out there because there’s a refinery mismatch between the United States and the rest of the world,’" says Sarah Emerson, head of Energy Security Analysis.

She says that some refineries in the U.S. still import light crude from overseas and that production costs will likely drive all of this.

If there’s cheaper oil, both light and heavy, to be found in other countries, selling U.S. crude overseas may be a difficult proposition.

“If you can produce it for less than competing countries around the world, which is not a given, then maybe you can push your way into a market," she says. "You’ve got to work hard. This is not for the faint of heart.”

Nevertheless, U.S. producers are convinced it will work to their benefit. But what does lifting the export ban mean for consumers?

“The debate, I guess, remains whether that means prices at home will be higher or whether our exports will help keep global prices lower," says Michael Webber, Deputy Director of the Energy Institute at the University of Texas at Austin. "It’s not really clear what the main effect will be.” 

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